Business-to-Business Markets

Business-to-Business Markets

Adding more dollars to the bottom line, increasing your company's
revenue opportunities, and capturing and maintaining an edge over your
competitorsthese are what e-business and business-to-business (B2B)
e-commerce are all about. If you make the most of technology and the Internet,
you can gain a competitive advantage by improving the efficiency and
effectiveness of your business communications. Many companies have found that
the first essential step in this process is to add the power of "e" to
the supply chain.

Supply chain management is the process of optimizing a company's
internal procurement practices, as well as the company's interaction with
suppliers and customers, to bring products to market more efficiently. B2B
e-commerce uses Internet technology to implement supply chain management in new
and very efficient ways. An efficient supply chain reduces total cost of
operations by reducing product cost. That can have a much bigger impact on the
bottom line than even getting fresh sources of revenues and earnings.

Although sometimes it seems that net profit isn't important to new
economy companies, in the long run it still determines management's success
or failure. Many business plans show escalating net profit driven by gross
sales, but in the real world it's often more effective to cut overhead.
Reducing the cost of acquiring, handling, and warehousing raw materials is a
great way to build the bottom line.

Buzzwords

B2BBusiness-to-business

Any industry that consumes mass quantities of raw materials, such as chemical
products, medical supplies, electronic parts, or automotive parts, must give a
lot of management attention to its procurement process. These companies
typically build a tight group of trusted suppliers. It takes sharp procurement
professionals to keep updating and building relationships in what becomes a
trading community.

The Internet brings these procurement professionals new tools for buying and
bartering. At the same time, these tools open new markets and trading
communities to suppliers.

Buyers and suppliers can meet in many places on the Web. Auctions are popular
and bartering is growing. For example, a site named Ubarter.com automates the
barter process. But sophisticated trading communities typically gather at
specialized trading Web site systems called B2B marketplaces. A
marketplace is an automated bazaar that cuts the number of middlemen and
acquisition costs while maintaining quality. Companies can operate their own
marketplace sites, join existing constellations of sites, or use online
services. The models are still emerging, but any company can be a seller, a
buyer, or a B2B market maker.

Buzzwords

MarketplaceA specialized Web site containing catalogs,
order forms, and other useful information provided by product suppliers. Like
a real market, it's a place to buy, haggle over, and exchange goods and
services.

Who Needs This?

Small supply companies can
benefit from joining a B2B marketplace because they can reach a wide world of
potential buyers. Similarly, large companies can efficiently deal with many
small companies through a marketplace. In a recent PC Magazine interview
with Dave Clementz, the Chief Information Officer of Chevron Oil, Mr. Clementz
reported that suppliers using Chevron's supply-chain experience
cost-of-sale reductions ranging from 530%. So in addition to reaching a
bigger market, a B2B marketplace can enable suppliers to more efficiently reach
their traditional markets.

Any company that consumes raw materials and makes them into finished products
can benefit from automated supply chain management techniques. Of course, the
bigger the operation, the bigger the potential benefit and also the bigger the
initial cost.

The B2B marketplace is a new way to implement an old business practice called
supply chain management. Fast companies beat slow companies, so two major
goals of modern supply chain management are to reduce time and to pay for only
what you need only when you need it. Of course, the supply chain is also about
the quality of the raw materials. Today, a supply chain is a highly interactive
process that can cover the entire cycle from product R&D, concept, and
design through creation and delivery. The buzzword phrase "just-in-time
delivery" describes supply chain management tied to a clock. If raw
material arrives on your loading dock just in time to feed the manufacturing
process then you reduce handling, storage, and cost. Knowing when all of the
parts will come together for manufacturing allows you to budget people,
facilities, and even consumables such as electricity and gas while you beat the
competition.

Just-in-time delivery refers to the
ability to deliver raw materials to the loading dock just before they're
needed for production. This ability reduces the cost of inventory, warehouse
space, and handling, so it significantly reduces production costs.

Supply chain management, depicted in Figure
3.1, focuses on the materials and goods that go directly into your product.
Today, we often refer to it as e-procurement. It's usually done
by a few procurement professionals. But companies need more than raw materials.
The process of acquiring the supplies that you need to do business, from dust
mops to office machines, is known as indirect purchasing, because the
purchases don't go directly into the product. Today, we call it e-purchasing.
We deal with e-purchasing in the next chapter, but the tools for e-procurement
and e-purchasing are very similar. The major difference is that e-purchasing
is done by many people throughout a companyoften with a variety of job
titles. e-Procurement and supply chain management are done by a few professionals.

e-PurchasingBuying common products
and services that a company needs to do business. Examples are light bulbs,
computers, coffee service, and travel tickets. Many employees with different
job titles placed throughout the organization often do this.

In Chapter 2, "Vertical Portals for B2B," we discussed vertical
portals. Although a marketplace and a vertical portal have different content,
they can serve the same audience and closely link to each other. Vertical
portals often serve as a gateway to a marketplace. In some cases, particularly
in areas such as auctions and technical reference libraries, the portal and
marketplace become one.

As with vertical portals, you can decide to participate in a marketplace to
benefit from the efficiency, or you can decide to set up a marketplace to better
market your services or even to grow and influence an industry. Small companies
particularly can benefit from the access to big markets they receive through a
marketplace. If you're a bigger company and you want to influence an
industry, you become what is called a market maker.

REALITY CHECK: B2B can improve efficiency and provide competitive advantages,
but it must be the right kind of B2B for your organization.

Many suppliers of equipment and consumable productsCisco, Dell,
and Grainger are good exampleshave established customer relationship
management systems. In many cases you're better off going to the suppliers
rather than making the suppliers come to you.

Adopting e-purchasing brings corporate cultural changes for both
consumers and suppliers. When computers change people's jobs you need to
give as much attention to the people as you do to the systems or the systems
will fail.

Small suppliers can benefit from joining trading groups, but they must
keep listings up-to-date.

A corporate supply chain management system has its greatest value when
it's integrated with accounting and manufacturing applications, but custom
integration isn't cheap. Budgets in six and seven figures are
common.

The chemical industry, always big on bartering materials, provides good examples
of the different roles available in a B2B market. CheMatch.com is an online
marketplace dot-com company aimed specifically at the bulk chemical industry.
Over 125 companies act as buyers, sellers, and traders on its marketplace. Eastman
Chemical (http://www.eastman.com/),
an established chemical firm in Tennessee, is becoming a B2B market maker. Eastman
is working with SESAMI.com to create a
marketplace for the chemical industry in Asia and it's involved in a project
called Shipchem.com that drills down into ordering specialized shipping services
for chemical products.

Although a B2B marketplace can be as busy as a bazaar, each buyer sees the
equivalent of a private library of catalogs and product brochures from different
companies combined with a bulletin board for posting messages, an auction, ordering
systems, and delivery systems. Figure
3.2 gives you the idea. Suppliers enter their catalogs and brochures into
the marketplace as a series of files, but companies such as Ariba and Grainger
are collaborating on specialized features written in the Commerce XML (CXML)
scripting language to automate the handling of supplier content. Sellers receive
orders by email, fax, or electroic document exchange and settle accounts by
electronic links through banks, or maybe by paper mail. In the most elementary
form, buyers only need an Internet connection, a browser, and a password to
browse and search the combined material.

Figure 3.2 Each
buyer in the B2B marketplace sees the equivalent of a private library of catalogs
and product brochures from different companies, as well as ordering and delivery
systems.

e-Chemicals also provides a neutral online marketplace that enables its
registered buyers to select a product, get a price, and order and track
shipments online through its Web site,
http://www.e-chemicals.com/.
The company's goal is to be the supply chain backbone of the chemical
industry worldwide. e-Chemicals is a partner company of Internet Capital Group,
an Internet company of more than 60 partner organizations committed to being the
world leader in each of its industry segments.